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The 2nd Derivative of Human Contact
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The 2nd Derivative of Human Contact

by The MoleMarch 17, 2010

by gmak

 Conversation has become a derivative of itself through the random online chat. I guess that makes my participation through delayed Youtube observation a second derivative. Second derivatives are cool because when they go up a bit, the market goes up a lot. Just think about the slowdown in the fall in housing prices 0 or jobless claims.

http://www.youtube.com/watch?v=32vpgNiAH60

 

 

This is some imagination I have.The broken clock sure is an interesting place.  Time to watch an inspirational video to feel better about the human condition. How great we are.

 

EQUITY

Yesterday’s odds of a close below the open were defeated.  I guess that 50% vs 42%or so is just too tight – and it might as well be called 50 /50. In fact, this is beginning to look like the same story everywhere – and about as useless as [pick the derogatory analogy of your choice].

In a market with an upward sloping SPX, and a bar that is a ’15’ (= open around LOD, close around HOD), the next day has a 40% chance of close > open and a 50% chance of close < open. The two highest probability shapes are a 15 (yes, again) and a 51 – half the probability of the 15.

I’m not sure if this is really tradeable, but I will perservere to try to understand the equity index behaviour. I took a hit playing todays probability, then went flat before FOMC, and rode the subsequent pop down. EUR and SPX sure looked like longs were squaring their book before the announcement. I guess they all tried to rush back in at once.

The one thing that I am sure of is that SPX has been 11 days completely above the 55DMA. I’ve already published the stats and odds of how long it can stay up here – and time is short if SPX is to get below the 55DMA this week (I believe that it is unlikely given OPEX and the distance apart they are).

I think that my next research effort will be to look at what happens on days before and during OPEX – you know the myths (Thursday, Monday, Wednesday).

In the meantime, I watched ESM0 be pinned to 1154.50 – and it stayed there until midnight EST, where it moved to a new level at 1157ish for the rest of the night. ESM0 has been trying to make a move above the R1 pivot, but it looks weak to me – given declining volume as it moves up (this means more in the AH than during the day, IMO). Pivots:

  • R2: 1163 = Dare to dream your little veal dreams.
  • R1: 1159 = ESM0 just poked through and Ihear the sound of fingernais against stony ground on the cliff.
  • Neutral: 1151.75 = Was kind of a roof, briefly, yesterday afternoon. Might be kind of support in any selloff.
  • S1: 1147.75 =  Has been both resistance and support recently. The degree of support now would depend on how tired and worn the volumes at that level turn out to be.
  • S2: 1140.50 =  This was resistance ast week. Certainly will be support now if ever ESM0 were to wander down that way.

FX

I noticed something interesting yesterday. The EUR futures happen to lockdown at 5PM – 6PM. As soon as they closed, there was a mini-pop in the spot market (12 – 15 pips). When the futures opened again, the  EUR spot came back down. I haven’t been in a position to observe this before. I’m not sure what to make of it, but it certainly would be an interesting phenomena if it repeats on a regular basis.

I don’t like being short anything that has that classic bottom on a daily basis. However, if you’re running between the raindrops, you have to take the trade where it lies.

 I found this piece by Macroman. Take a look halfway down the page at the chart and read the fine print below. There is a dislocation happening in the forward FX market – and according to Macroman, this often leads to a drop in equity. 

“Squeezes in $ rates/dislocation in the FX forward market have tended to accompany downdrafts in equities…so if you’re thinking of a cheeky SPX purchase: caveat emptor”.

http://macro-man.blogspot.com/2010/03/will-they-or-wont-they.htm

If that’s too esoteric, how about this? The EUR wen up and hit the 13814 FIB line on the daily chart – as one would expect in a sane TA world.  Now the big question is will there be a re-test of the channel top, or is it so smudged like a chalk line scuffed by many passes that it is meaningless? As well, the EUR bar looks quite small compared to the norm (eyeballing). Will the extra length come from above or below?

http://www.uploadgeek.com/share-7594_4BA0AA44.html

The 3min chart shows a pivot at 1.3814 – which makes sense – and that was rejected before the Euroe open. Support seems to have been around 1.3760 – which looks like the support area all night from Asia.  Ichimoku and some TD indicators say that the TA bias is bearish for the short term (quick trade) so I think I will go back in short. Am I crazy? Or just playing the odds? I see a hower high following a lower low. I see overbought on the swing; MACD trying to go bearish; upper bollinger above as resistance. Time to pull the trigger as soon as the current TD SELL setup count finishes. Short at

NEWS

  • FED still to keep rates low for an ‘extended period’. Markets have orgasm.
  • BoJ expands lending program by around $55 billion to tackle Deflation (read: in order to depreciate the YEN to compete for exports). It’s working because the demand for services at home is increasing (driven by expanding exports).
  • UK jobless claims decline at fastest pace since 1997 as economy recovers (nothing like a little 2nd derivative news to put the hop in the step).
  • AIG draws $2 bb more from Treasury. Geithner seen passing notes under bathroom stall.
  • Beckham is out of the world cup and possible soccer.
  • ESM0 is way overbought. (You knew that <grin>). Can’t get a read on volumes since it’s the new kid.

 

DATA

MBA mortgages at 7AM; PPI and all its components at 8:30AM EDT.

 

Conclusion:

What I am thinking is that I want to dip into the EUR fountain and take a quick short drink. However, I am haunted by that classic bottom and how fragile the TA resistance lines can be in the face of a possible wave of US carry trade. My numbers show, thought, that the flow should be the other way with the EUR – providing an arbitrage opportunity to borrow EUR and buy USD, helped by distortions between the 3m rates and the FX forward rate.

I look at SPX and that bar sitting up and begging pretty on top of the January high. At this point is a “TDST UP” indicator which has turned solid – and to tell you the truth, this happens so rarely that I’m not sure what it means anymore. It either means that a reversal is imminent, or that the trend upwards is highly likely to continue. I suspect the latter, but really need DavidDT to chime in here and tell us if this is tradeable. TD Pressure has spent a good deal of time in overbought and this ooks likely to continue (because of the pink box) so my guess is that the TDST UP turning solid is a bullish sign.

When this is coupled with the 55DMA probabilities, an upward trend seems most likely. WIthin the day, though the possibilities are rife with promise.

http://www.uploadgeek.com/share-9E77_4BA0B194.html

Patience is a virtue.


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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